Question

Dividends on Preferred and Common Stock Pecan Theatre Inc. owns and operates movie theaters throughout Florida and Georgia. Pecan Theatre has declared the following annual dividends over a six-year period: 20Y1, $30,000; 20Y2, $60,000; 20Y3, $143,000; 20Y4, $165,000; 20Y5, $210,000; and 20Y6, $270,000. During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 25,000 shares of cumulative, preferred 3% stock, $100 par, and 100,000 shares of common stock, $20 par. Required: 1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears at the beginning of 20Y1. Summarize the data in tabular form. If required, round your answers to two decimal places. If the amount is zero, please enter "0". Preferred Dividends Common Dividends Year Total Dividends Total Per Share Total Per Share 20Y1 $ 30,000 $ 30,000 $ 1.2 $ 0 $ 0 20Y2 60,000 60,000 2.4 0 0 20Y3 143,000 20Y4 165,000 20Y5 210,000 20Y6 270,000 $ $ 2. Determine the average annual dividend per share for each class of stock for the six-year period. If required, round your answers to two decimal places. Average annual dividend for preferred $ per share Average annual dividend for common $ per share 3. Assuming a market price per share of $211 for the preferred stock and $25 for the common stock, determine the average annual percentage return on initial shareholders’ investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock. Round your answers to two decimal places. Preferred stock % Common stock %

Answer 1

1.

		Preferred Dividends	Common Dividends
Year	Total Dividends	Total	Per Share	Total Arrears at year end	Total	Per Share
Year 1	$30,000	$30,000	$1.20	$45,000	$0	$0.00
Year 2	$60,000	$60,000	$2.40	$60,000	$0	$0.00
Year 3	$1,43,000	$1,35,000	$5.40	$0	$8,000	$0.08
Year 4	$1,65,000	$75,000	$3.00	$0	$90,000	$0.90
Year 5	$2,10,000	$75,000	$3.00	$0	$1,35,000	$1.35
Year 6	$2,70,000	$75,000	$3.00	$0	$1,95,000	$1.95
Total		$4,50,000			$4,28,000

2:

Average annual dividend for preferred = (total Dividend / 6 Year)/ Number of preferred shares

= ($450000/6) / 25000 = $3 per share

Average annual dividend for Common = (total Dividend / 6 Year)/ Number of Common shares

= ($428000/ 6) / 100000 = $0.71 per share

3.

for preferred stock = Average annual dividend for preferred per share / market price = $3.00 / $211 = 1.42%

for Common stock = Average annual dividend for Common per share / market price = $0.71 / $25 = 2.84%